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Before College: 5+2+9 = A Great Way to Invest for College!

How to best save money for your child’s college education? We asked this of Kevin Wood, who recently retired after many years as a professional investment advisor. His answer was simple and enthusiastic — start a 529 plan!

These plans are specifically designed to help Americans in all income ranges save for college. Kevin affirmed that they’re simple, safe, and they grow tax free.

Kevin also offered three ground rules to have your 529 plan generate as much as possible for your child:

Open it as early as you can. The longer it’s open, the longer your plan earns money and the more college costs it’ll pay. So start contributing to a 529 plan as soon as possible after your child’s birth.

Authorize automatic monthly withdrawals from your bank account into your 529 plan. This way you’ll never forget to contribute to your plan.

Grow your contributions as your income grows. Most parents earn the least they’ll ever earn while their children are young. But if you can only contribute a few dollars at this point, do so. Then, grow your contributions as your career progresses and your income grows.

Got relatives who want to help out with college costs? Have them make monetary gifts to the 529 plan you open for your child. Student aid rules don’t count payments from parent-owned 529 plans as student income, but they do count payments from other 529 plans this way.

You can find 529 plans that accept initial contributions of $50 or even less and subsequent contributions that are just as small. So you don’t have to be wealthy to use a 529. If you can only afford to make small contributions for starters, do it! Then raise your contributions as you begin to earn more. This will go a long way toward generating the money your child needs to go to college.

Risk for 529 plans involves suffering losses without having sufficient time to recover those losses as 529 investments bounce back. So Kevin recommends you go with 529 plans that employ age-based approaches to investing. As your child gets to closer college, these offer more protection from market fluctuations.

You’ll pay fees to your 529 plan’s manager, but don’t let this deter you. Kevin stresses that a good manager who meticulously watches and adjusts your 529 investments is well worth the money.

So open a 529 plan soon, one that uses an age-based investment strategy. Contribute regularly, and increase your contribution whenever you can. Your student will thank you for his 529 plan at commencement, if not before!